It was painful to read the financial and other newspapers during the week before the Budget speech by Tito Mboweni on 24 February 2021. Doom and gloom par excellence. Is there one economist who did not forecast tax increases to pay for the Covid-19 vaccinations? One famous economist reiterated his long-held theory that South Africa is very close to the cliff and will definitely fall off soon. I too was a bit apprehensive about the contents of the new Budget.
The finance minister surprised friend and foe by sticking to his guns – by not surprising us with a new tax on the wealthy, or a special tax for the vaccination process. Yes, to me and many economists the surprise of the Budget was that Mboweni continued to do what he has been promising since day one in office. Not even 2020’s lengthy lockdowns and the enormous extra expenses of Covid-related allowances, nor the need to vaccinate 60 million people as soon as possible, could derail him from the promises made in 2019 when he delivered the first of his own Budget speeches. (He was appointed finance minister in October 2018 and had to read a Budget speech that had been prepared for him).
I read somewhere that Harry Houdini was the world’s best prestidigitator, and had to google the meaning of the word. It has two sources: presto (Italian), which means “fast”, and digitus (Latin), which means “finger”. A magician has fast fingers and does tricks with cards and other objects too fast for the spectators’ eyes to follow. So, the typical magician is also a prestidigitator.
Mboweni came out of this Budget round unscathed, like Houdini, even though he seemed stuck. But there is no sign of an effort to trick us, the audience. The Budget speech is the result of a slow and deliberate process of getting government finances back to being sound and healthy. Visit National Treasury’s website and read the 2019 Budget Review, alongside Mboweni’s tweets of two years. He believes the government is too large and its salary bill out of order, and is prepared to make himself unpopular with the unions to get the share of government expenditure smaller, even if government officials have to live without annual increases for a few years. Vacant posts will not necessarily be filled, and officials will be encouraged to retire earlier.
Mboweni’s patience is up with Eskom and the Passenger Rail Agency of South Africa, which will not be allowed to beg at Treasury any more.
He also understands that the government cannot create jobs. It can create posts for people to sit in and receive salaries, but not productive jobs for skilled persons to add value to the gross national product.
Hence the decision to decrease corporate tax rates, and even decrease individual tax rates for most. Companies are able to create jobs, because if they pay fewer taxes, their costs decrease and they become more competitive. They can then lower their prices, which will increase the demand for their goods. That is when they are required to produce more, which necessitates hiring more workers.
Mboweni is fortunate to have more funds than expected collected from the South African Revenue Service (SARS) during 2020, so that he did not have to implement new taxes or punish companies and individuals with higher rates. However, fortunate does not mean lucky. Since he became finance minister, SARS has also been cleaned up and refocused, and the more-than-expected revenue collected could partly be attributed to the minister to whom SARS reports.
The saddest parts of the Budget are the increases in taxes on alcohol and the levies on fuel. The liquor industry had the wind from ahead for most of 2020 and is struggling to get back on its feet, and now gets a kick in the stomach while still on the ground.
Increasing the fuel levy again? This is really bad for the economy. Our research shows that the poorest people in the country ultimately suffer the most with higher fuel prices. They have to spend a huge part of their budgets on transport to and from work, while the largest portion of their budgets goes to food, which becomes more expensive when transport margins increase.
I found this paragraph in an opinion piece I wrote in 2020, and would like to end with it here:
“Finance Minister Tito Mboweni is our economic surgeon, and he needs to be given the full authority to do what is required. We are lucky to have the right minister of finance, but he has to be given the green light to implement all the policies he advocates and in which he believes, to restore our country to some sense of normality, productivity and growth.” DM
Baby hippos use the spines of crocodiles as chew toys. Because hippos clearly needed to be more terrifying.
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